Sooner or Later Inc

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ACCOUNTING CASES, RESEARCH, AND ANALYSIS GROUP ASSIGNEMNT #1 MEMORANDUM TO: Professor Siyi Li FROM: Group 5 DATE: October 3, 2013 SUBJECT: Performance Based Stock Compensation This memo is an analysis of the case in which the Company Sooner or Later Inc granted “at the money” performance based stock options and the fair value is not easily determinable. The grant-date fair value of each award is $9. With the revenue target factored into the fair value assessment the grant-date fair value is $6. Management believes it is probable the company will achieve cumulative revenue in excess of $10 million. General Priciple – Performance are only recorded when the target is proable to be acheived Sooner and Later Inc On January 1, 2006, Sooner or Later Inc. granted 1,000 “at-the-money” employee stock options (i.e., the exercise price was equal to the stock price on the grant date). To align the compensation of the employees with the financial performance of the company, the award will vest only if cumulative revenue over the following three-year reporting period is greater than $10 million and the employees are still employed by Sooner or Later. As of the date of the grant, management believes it is probable that the company will achieve cumulative revenue in excess of $10 million over the following threeyear period. Each award has a grant-date fair value of $9. Sooner or Later’s valuation professionals have indicated that if the revenue target was factored into the fair value assessment, the grant-date fair value would be $6. Additionally, according to FASB ASC 718-10-55-64: Performance or service conditions that only affect vesting are excluded from the estimate of grant-date fair value, but all other performance or service conditions that affect an award’s fair value are included in the estimate of grant-date

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